Australia: VC in vogue

Athena Home Loans is an appropriate investment target for a superannuation fund. The company helps Australian homeowners refinance their mortgages with better loans sourced from within the superannuation industry and from other non-bank lenders. An individual client can save A$60,000 ($41,000) during the life of their mortgage, it claims.

Last week, AustralianSuper led a A$70 million Series C round for Athena, accompanied by Square Peg Capital, Salesforce Ventures, AirTree Ventures, and NAB Ventures. It was the super fund’s first direct investment in a start-up. Industry peer Hostplus also took part in the round. This is its second commitment to Athena.

Ask a local venture capital player which investors feature most frequently in follow-on rounds and the answer will probably be global VC firms. But super funds are getting a taste for it as well. There are predictable caveats: interest doesn’t necessarily translate into execution; the investment uptick is from a low base; and activity is concentrated within a small group of participants. Even so, it represents a marked turnaround for Australia’s VC industry as well as in local LP sentiment towards it.

AustralianSuper and Hostplus’ support of Athena is not coincidental; they are LPs in funds managed by some of the GPs involved. Indeed, the ramp-up in Australian venture capital fundraising post-2014 is inextricably linked to super fund backing. AirTree, Blackbird Ventures, Brandon Capital and Square Peg are the most prominent independent managers to receive commitments from these investors. 

In 2016, when VC fundraising topped $1 billion for the first time, they accounted for more than half the total. They contributed over 40% as that threshold was breached again in 2018, helped by the secondary spin-out of Telstra Ventures.

Commitments to funds and follow-on rounds will no doubt continue to come provided the market doesn’t crash. However, it is suggested the super funds won’t stop there. 

Two years ago, Warburg Pincus sold a portion of every Asian investment in its 11th global fund to a consortium led by Lexington Partners and Goldman Sachs. The positions were spun out into a new vehicle that is still managed by Warburg Pincus. The $1.2 billion deal is said to have inspired plenty of GPs in the region to consider a similar strategy, though we have yet to see any structural replicas.

As recently as two years ago, a strip sale by an Australian venture capital firm would have seemed ludicrous. But apparently the possibility has been floated, and some industry participants are convinced it will happen, while stopping short of suggesting a likely timeline. 

The optimistic view: For a super fund that wants to build up local tech exposure – preferably to more proven business models – and work in partnership with a GP, buying a pro rata piece of a portfolio of mature investments might make sense. The pessimistic view: This is classic top-of-cycle behavior that may come back to haunt them. 

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• Topics
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